The good, bad and ugly about gift cards

Posted: Sunday, November 25, 2007

NEW YORK - If you're planning on giving someone a gift card this Christmas, you're in good company. Gift cards are fast becoming one of America's favorite presents. U.S. consumers are expected to spend more than $26 billion on gift cards this holiday season, according to the National Retail Federation.

This makes sense when you consider that giving a gift card is a less taboo way of giving cash, said Ben Woolsey of creditcards.com.

Unlike cash, gift cards suggest that the buyer put some time and thought in choosing a present, while still allowing the recipient the freedom to pick something out for him or herself.

But be aware: For all the convenience and flexibility they offer, gift cards aren't without their drawbacks. Cards purchased directly from a store generally work much like cash, but the "general use" gift cards being hawked by some banks and credit card issuers carry a number of fees and restrictions, Woolsey warns.

If you are one of the more than two-thirds of Americans who plan to give a gift card this winter, here are two downsides to keep in mind:

Money won't go as far. A $25 gift card will cost you more than the face value, generally around $4 more, plus shipping and handling, according to Woolsey.

Gift cards aren't credit cards. It's true that gift cards can be used in many of the same venues as credit cards, but they aren't interchangeable. As a rule, gift cards cannot be used at hotels or to rent a car.

A good rule of thumb: If you give a gift card this season, encourage the recipient to use the value of the card before they lose it, and make sure to apprise them of any restrictions on use.